Arbitration Showdown

Mock Hearing: Max Scherzer

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It's salary arbitration season in Major League Baseball, and here at Baseball Prospectus we're holding mock hearings, arguing for or against the actual team/player filing figures before a three-person panel of certified arbitrators. We've selected 10 of this winter's most intriguing, highest-dollar cases to cover in depth over the first two weeks of February (regardless of whether the players' real-life cases remain unsettled). After each side's opening argument and rebuttal/summation below, we'll give you a chance to vote on what you think the result should be before seeing the panel's decision. For more on the arbitration process, read the series intro by Atlanta Braves Assistant GM John Coppolella, listen to his appearance on Episode 35 of Up and In, or check out the BP Basics introduction to arbitration.

In Part Four of this 10-part series, we'll tackle Detroit Tigers pitcher Max Scherzer, who sought $7.4 million and was offered $6.05 million. Unbeknownst to our arbitrators, Scherzer and the Tigers reached a one-year settlement at the $6.725 million midpoint, avoiding arbitration.

The criteria will be the quality of the Player’s contribution to his Club during the past season (including but not limited to his overall performance, special qualities of leadership and public appeal), the length and consistency of his career contribution, the record of the Player’s past compensation, comparative baseball salaries, the existence of any physical or mental defects on the part of the Player, and the recent performance record of the Club including but not limited to its League standing and attendance as an indication of public acceptance.

The complete procedure for salary arbitration is available in the Basic Agreement.

The Detroit Tigers are fresh off a World Series appearance, having won their division for the second year in a row. The club has had great success in recent years thanks to a supportive fan base, an owner who is willing to spend money, a powerful offense, and top-flight pitching, especially at the top of the rotation. Max Scherzer was a key part of that top-heavy rotation in Detroit's run to the World Series last year and deserves his requested filing figure.

In 2012, the Tigers pitching staff recorded the fourth-best ERA in the American League, finishing one point out of the top three (3.77 vs. Seattle's 3.76). Much of the credit for that goes to the staff's top two pitchers: former Cy Young Award winner Justin Verlander, the undeniable ace of the staff, and Max Scherzer. The two pitchers were first and second on the staff in wins, games started, innings pitched, and strikeouts in 2012, with Scherzer finishing third in ERA. On top of that, the strikeout totals for Verlander and Scherzer also ranked first and second, respectively, in the entire American League. In fact, Verlander's total of 239 strikeouts beat out Scherzer's total by only eight, a tiny amount when you consider that Verlander pitched 50 more innings than Scherzer. On a per-nine-inning basis (the standard ratio used to judge pitchers), Scherzer blows the $20 million-a-year ace Verlander away with 11.1 strikeouts per nine—the best rate in the majors—compared to Verlander's 9.0.

Among his peers, Scherzer also ranks highly. The most recent comparable to Scherzer is Chicago's Matt Garza, whose platform year came in 2011.

Garza and Scherzer are remarkably similar. Both had played through their fourth year of service time at age 27. In that time, Garza had averaged 198 innings pitched in his four full years, with a 3.72 ERA, while striking out 664 batters. In his platform year, Garza managed to better his ERA and strikeout rate, but failed to impress in the most important category for pitchers: wins. Garza's 10-10 record was pedestrian at best. For this, Garza was awarded $9.5 million for the 2012 season.

Meanwhile, Scherzer has averaged 187 innings pitched, with a 3.94 ERA and 763 strikeouts in his first four full years. In 2012, Scherzer lowered his ERA to 3.72 and struck out the second-most batters in the league, all while compiling a 16-7 record and helping lead his team to the World Series. His .696 winning percentage was tops on the Tigers, even besting Verlander’s. Compared to Garza's $9.5 million contract, Scherzer's request for $7.4 million is more than reasonable.

But Garza isn't the only comparable at Scherzer's service level. Since 2007, 12 pitchers have earned more than the $6.725 million midpoint in the year following their platform year. Three of these cases are distinct in that their contract terms were decided before the player ever played a major-league game, and a fourth is complicated by the player winning two Cy Young Awards before the end of his platform year. Focusing on the remaining eight players, we see these averages through the players' first four years.

In the bottom two rows, we can see how Scherzer's first four years stack up against those of his comparables. Though Scherzer may have a slightly higher ERA, he still manages every year to win as many games as the others while striking out batters at a substantially higher rate. Scherzer's play year after year clearly puts him among this group. In addition, only two of the eight players here managed to amass more than Scherzer's 16 wins in their platform year. Considering the average year-after salary among his peers is $7.7 million, Scherzer's requested figure is even harder to deny.

Max Scherzer is not the ace of the Detroit Tigers. That role belongs undisputedly to Justin Verlander, the 2011 Cy Young Award-winner and 2012 runner-up. Even so, Scherzer was a major piece of the Tigers’ trip to the World Series, matching Verlander step-for-step in wins and strikeouts, and even outplaying the ace on a game-for-game basis. Among his peers, most notably Chicago's Matt Garza, Scherzer is a durable performer who both wins games and strikes batters out at an above-average rate, giving up only a slightly higher ERA to do so. With a requested figure of $7.4 million, a salary substantially lower than many of his comparables received, Scherzer deserves to win this hearing. —Larry Granillo

Club's Presentation

The Club offer of $6.05 million for Max Scherzer in one-year salary arbitration for 2013 is fair relative to the $7.4 million that Scherzer is seeking. The mid-point between the two figures is $6.725 million. To place the offering salary of $6.05 million in perspective, of all starting pitchers in salary arbitration last year at the same level of major-league service time, only two garnered higher salaries for the following season than what the Tigers are offering: the Cubs’ Matt Garza at $9,500,000, and the first year of the Giants’ multi-year deal with starter Tim Lincecum at $18 million. However, both of those players were in their third year of salary arbitration (Scherzer is in his second), thus elevating their salary scale in arbitration. What the Tigers are offeringis higher than what any other starting pitcher entering his second year of salary arbitration eligibility received in 2012.

A case study in salary arbitration hearing can be made by comparing Scherzer in his 2012 platform year to Washington Nationals starter John Lannan in 2011, who had the same service time.

Lannan was seeking $5.7 million, or $1.7 million less than what Scherzer is seeking, while the Washington Nationals offered $5 million, or $1.05 million less than what the Tigers are offering Scherzer. The case went to hearing, with a panel ruling in favor of the Washington Nationals’ $5 million offer.

While Scherzer has a higher strikeout ratio, Lannan gave up fewer runs and earned runs, posting a lower ERA. Additionally, Lannan was better when it counted most: with runners in scoring position. When there were two outs and runners in scoring position, Lannan’s opponents had a .244 batting average, while Scherzer’s managed a .276 average.

As for the win-loss record, Scherzer was on a far superior team that offered greater run support. The Tigers finished this past season with an 88-74 record, winning the AL Central, while the Nationals in 2011 were 80-81, finishing third in the NL East standings.

The comparisons to his peers in this year’s class also show that the Tigers’ offer is worthy of his play in 2012.

Both Jason Hammel of the Orioles and the Reds’ Homer Bailey posted lower earned run averages. Bailey gave up fewer hits per inning pitched (1.01 compared to 1.05 by Scherzer).

Based on the performance and pay of his peers, both within this year’s class and last, Max Scherzer deserves the generous $6.05 million salary the Tigers are offering for the 2013 season. —Maury Brown

Player's Rebuttal/Summation

The club offers John Lannan as a more compelling comparable to Max Scherzer. It's true that, in their respective platform years, Lannan and Scherzer had very similar innings pitched and ERA, but the similarities end there. In two important categories for measuring a pitcher's value to his club—wins and strikeouts—Scherzer beats Lannan handily.

Scherzer’s 16-win total is 60 percent greater than Lannan's 10, and that cannot be washed away by their clubs' respective win totals. The win discrepancy between the 2012 Tigers and 2011 Nationals is only eight games, of which six would somehow need to be credited to Scherzer in order to call the two equals. On the strikeout end, Lannan struck out 125 fewer batters than Scherzer in only three fewer innings. Indeed, Scherzer's strikeout-per-nine-innings rate in 2012 was more than double Lannan's, 11.1 K/9 to 5.2 K/9. Any decision to award a salary to Scherzer based on Lannan's 2011 performance would do a great disservice to Scherzer.

The other two comparables offered by the club (Homer Bailey and Jason Hammel) suffer from the same weaknesses, as Scherzer bests them both in wins and strikeouts. Moreover, Scherzer helped pitch his club into the World Series in 2012, all but guaranteeing an increase in fan support and revenues next year. For a team that is already paying three separate players more than $20 million a year for the next two seasons, the $7.4 million requested by Scherzer is much closer to the value he has provided the Tigers than the amount submitted by the Club.

The Club also mentions that Matt Garza was in his third year of arbitration during his platform year. It should be noted that the Collective Bargaining Agreement states: "The arbitration panel shall...give particular attention, for comparative salary purposes, to the contracts of Players with Major League service not exceeding one annual service group above the Player’s annual service group." The CBA also allows the Player to "argue the equal relevance of salaries of Players without regard to service." As such, we feel that the Garza comparison is still very relevant to the case. If the panel feels that the comparison is unfair, however, it should be noted that the $7.7 million average salary among the other listed comparables includes five players who negotiated their salary as part of a multi-year deal, accepting a lower annual salary for increased financial security.

Considering the value Max Scherzer has brought to the Tigers over his career and in their 2012 World Series season in particular, and looking at the figures his comparables have been awarded in recent years, the panel should find in favor of the $7.4 million figure requested by Scherzer. —Larry Granillo

Club's Rebuttal/Summation

The club will not contest the strikeout ratio for Scherzer. The issue is not his performance in that statistical category, but rather the compensation he is seeking for the upcoming season. As the Club has stated, the offering figure eclipses that awarded to all starting pitchers in his class last year, with the exception of Garza and Lincecum, both of whom were in their third round of salary arbitration, as they entered the process as Super Twos. In that framework, the salary comparables are mismatched. Scherzer should benefit from this salary increase not now, but next year, should he not reach a multi-year contract before he would enter salary arbitration in 2014.

The club would once again like to focus on the more than reasonable salary being offered along with potential associated risks for the upcoming season.

In offering the salary of $6.05 million for the 2013, the club not only is offering fair compensation in light of his statistical merit, but at potential risk.

Scherzer suffered four nagging injuries in 2012, missing a total of 26 days:

Of these, the shoulder injury is of concern to the club. By Scherzer’s own admission, it was a “lingering” matter.

The physical problems that are of most concern began on Sept. 18 against the Athletics, when Scherzer exited after two innings. While he made his next start, he began having difficulties.

"Your arm's sore after every start. My arm was sore after that last start," Scherzer said at the time. "I was able to loosen it up and be able to throw my 'pen. But after that, I lost kind of the range of motion that I had gained by loosening it up. It became painful to do a couple specific range of motions."

Although Scherzer returned to pitch in the playoffs, the injury continued to bother him until the end of the regular season:

"I want to be able to, but at the same time, when you have a recurring injury like this, you can't get back onto the mound again before you're 100 percent," Scherzer said on Sept 27.

To close, while the club acknowledges Mr. Scherzer’s exceptional strikeout ratio, we believe that he lags behind his comparables in other statistical categories. When added to the injury concerns, the club feels he warrants the offered salary of $6.05 million over the $7.4 million he is seeking. —Maury Brown

The Reader Poll

Before scrolling down to read the three-person panel’s decision, record your own decision here:

Burt Fendelman is an attorney with more than 45 years of experience, initially in corporate finance and securities laws working as inside counsel for several major securities brokerage firms. He has performed as an arbitrator for FINRA (Financial Industry Regulatory Authority), the American Arbitration Association, and currently as an arbitrator and mediator for the New York County Lawyers Association in fee dispute-related matters. He is presently a self-described “work in progress”, working with clients in areas related to art and antiques. He attended Washington University in St. Louis and NYU Graduate School of Tax Law, and he now lives in Manhattan.

Doris Lindbergh is a retired lawyer who is an arbitrator with FINRA (Financial Industry Regulatory Authority) and its predecessor forums, the National Association of Securities Dealers (NASD) and the New York Stock Exchange. She also arbitrates for the National Futures Association (NFA). She attended Washington University School of Law and has a Master of Arts from Fordham University. Her employment history includes stints at Wall Street investment banks and, most recently, the MTA New York City Transit Authority, but her most challenging assignment was raising a future Editor-in-Chief of Baseball Prospectus.

David Marcus is a retired lawyer and serves as an arbitrator with the Financial Advisory Regulatory Authority (FINRA). He lives in Metuchen, New Jersey. He attended Columbia College and Yale Law School, after which he served as an enforcement attorney with the SEC. His subsequent career includes working for the New York Stock Exchange heading its regulatory division, and working for several broker-dealers as a regulatory attorney or General Counsel.

The Panel’s Decision

3-0 in favor of the Player

Scherzer is a young pitcher, 28 years of age. His several physical injuries during the 2012 season all appear to be consistent with those that might be expected from a hard-throwing pitcher with high strikeout totals. There was no indication of previous injuries. In fact, he has become stronger, pitching almost 200 innings in each of his three years with Detroit. His cumulative ERA for his major-league career is an impressive 3.88 (3.72 for 2012), and he struck out 231 batters in 2012, leading the American League with a ratio of 11.1 per nine innings. His record, 12 wins and 11 losses for 2010, 15–9 for 2011, and 16-7 for 2010, shows consistent improvement. We believe roughly doubling his salary to $7.4 million is an appropriate amount.

The Sabermetric Perspective/Additional Commentary

Scherzer’s stuff and approach last season were such that he would have succeeded anywhere, but his performance was almost perfectly calculated to protect him from the terrors of Detroit's defense. Like most Tigers pitchers, he suffered from his teammates’ subpar support in the field when he allowed balls to be put into play. Scherzer’s solution was twofold. First, a career-low groundball rate: by allowing the ball to be lifted and trusting in a neutral park to protect him from a prohibitively high home run rate, Scherzer gave Austin Jackson chances that might have otherwise gone to (and through) a porous Tigers infield that allowed the AL’s second-highest batting average on ground balls. And second, a stratospheric strikeout rate, which plays well anywhere but especially so on a team where bad things happened to batted balls. Although Scherzer yielded a .333 BABIP, second only to teammate Rick Porcello among qualified pitchers, it didn’t hurt him as much as it would have had he been, well, just about anyone else.

Between the strikeout rate and the abbreviated, high-intensity outings—he averaged under six innings a start in 2012 and has never thrown a complete game—Scherzer is the the 21st-century starter taken to the extreme. As even his own representative took pains to point out, he’s not the equal of Verlander, an ace out of an earlier era. Not only does he not provide the innings, he allows more home runs, walks more batters, and frightened Tigers fans with shoulder fatigue. Nor has he sustained his recent success over several seasons. And then there are the platoon splits: Scherzer allowed a .296 TAv to lefties last season, with a .289 weighted multi-year mark. Righties, meanwhile, managed only a .201 TAv against him in 2012, with a .225 multi-year mark. That’s a 64-point difference, nearly four times the magnitude of the 17-point league-average split.

All of that admitted, few pitchers were as effective as Scherzer after April, and there is some potential for him to be even better in 2013, at least on the surface-stat level. Much was made of pitcher wins and run support in the presentations above—the 5.4 runs the Tigers offense averaged for Scherzer were the sixth-most any qualified starter received—and outside of an imagined arbitration hearing, neither one would pass muster as the best possible argument in a BP piece. But this is one case where winning percentage doesn’t deceive. Like the panel, you can put me down for the Player. —Ben Lindbergh

You had a great point, though, Maury, highlighting that "What the Tigers are offering is higher than what any other starting pitcher entering his second year of salary arbitration eligibility received in 2012." But that Scherzer requested a salary that was slightly less than the average of Larry's reasonable comparables, plus that Schezer had a really good year, made it really tough for your position.

My experience with arbitration as a lawyer is that the arbitrators are most often trying to do what seems reasonable in light of what they know. Scherzer's filing amount was eminently reasonable in light of the comparables and his performance, and so he won. Jason Hammel's (for example) was not, and so he lost.

Are the clubs so obviously ignorant of important measures like K rate during these hearings? Is it really a matter of tricking the panel into thinking W/L matters more than K/9 or WHIP (not mentioned anywhere by anyone)?

Somewhere,Phil Hughes is wearing out his phone trying to book this panel."Did you know I once won 18 games? Felix Hernandez only averages 14 wins per year, and Matt Cain only averages 12! Some silly people gave them each $20M per year! Ho, ho. P.S. I'll take only $18M, for realsies."

The team side comps of Lannan, Bailey etc. were ridiculous. As soon as I saw those names, I knew there was no case to be made for the team. A welcome relief to have a hearing that I could decide easily to make me feel smart. Most of the time I'm scratching my head and feeling stupid.

I'd imagine that among the challenges this piece demands is arguing a position that you would not have taken. Presumably the club makes their offer after preparing a case for that offer, where in these highly instructive exercises, you're forced to try and reverse engineer the team's salary number.

In future pieces if you think the offer or demands are too low/high for what you'd want to argue, that would be another valuable insight.

No, I think the number was reasonable. It's important to note that both the MLBPA and 245 Park review filing numbers very closely and make recommendations. A side in a case does not have to follow the recommendation, but there's reasons why the sides provide it....

If you're a small agency that's never done a salary arb hearing, you run the risk of filing a figure that can be way outside what is realistic. Remember, there's nothing to stop an agent from filing far over the relative comp for a player, but in doing so you run the risk of getting killed at hearing.

The mid-point serves its purpose for settlements, which is why there are so few cases that go to hearing. In this series of mock hearings, you're not arguing the mid-point as the panel rules on one figure or the other, there is no middle ground.

I have been told more than once that the "bad feelings" thing is overblown. Remember, what's occurring is a case for the players of a big raise as opposed to a bigger raise. Even when the player loses, he wins.

I just want to say thanks to the BP crew for offering these mock arbitration cases to us. While I read nearly everything on the site, these cases are something that I find very compelling and I've enjoyed them so far. It is great to have BP shed some light on something that has been, by and large, a mysterious process to me.

I thought the two year v. Three year distinction on comparables was ridiculous, but the injury concern very valid. Not so much the earlier ones but A shoulder injury the pitcher describes as nagging who depends on high velocity and high strikeouts is a concern. Not enough to swing the case to the club, but a worry for a team that depends on his continued success.

On the other hand, if the off season allowed the shoulder to heal, I look forward to mad max taking the next step forward as the rest of his stats catch up to his devastating k/9 ratio.

Great job to everyone involved. This was satisfying as a reader not only for its specific subject matter (especially for Max Scherzer and any Detroit reference), but also for its relevance to negotiations and other pure business matters. Maury's point that "you risk shooting up valuable time in a hearing if you get an arbitrator that is not versed..." is valid whether it is a sports-themed arbitration or in other business matters.

Finally, this is yet another example of how one can be enlightened through the lens of baseball. That illumination is what drives me back to Baseball Prospectus time and again. Fantastic series and I look forward to more.